Question

Sunland Corp. purchased machinery for $313,950 on May 1, 2020. It is estimated that it will have a useful life of 10 years, salvage value of $16,950, production of 237,600 units, and working hours of 25,000. During 2021, Sunland Corp. uses the machinery for 2,650 hours, and the machinery produces 28,800 units. From the information given, compute the depreciation charge for 2021 under each of the following methods. (Round intermediate calculations to 2 decimal places, e.g. 5.25 and final answers to O decimal places, e.g. 45,892.) A (a) Straight-line A (b) Units-of-output A (c) Working hours A (d) Sum-of-the-years'-digits (e) Declining-balance (use 20% as the annual rate) $

Answer 1

a. Straight line depreciation expense for 2021 = (cost - salvage value) / Years

= ($313,950 - $16,950) / 10

= $29,700

b. Units of output method

Depreciation expense for 2021 = (Production in 2021 / Total production) * (cost - salvage value)

= (28,800 / 237,600) / ($313,950 - $16,950)

= $36,000

c. Working hours method

Depreciation expense for 2021 = (Machine hours uses in 2021 / Total machine hours) * (cost - salvage value)

= (2,650 / 25,000) / ($313,950 - $16,950)

= $31,482

d. Sum of the years digits method

Sum of years = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10

= 55

Depreciation expense for 2021 = (Cost - Salvage value) * (9/55)

= ($313,950 - $16,950) * (9/55)

= $297,000 * (9/55)

= $48,600

e. Declining balance method

2020 depreciation expense = cost * Depreciation rate * (8/12)

= $313,950 * 20% * (8/12)

= $41,860

2021 Depreciation Expense = (Cost - $41,860) * 20%

= ($313,950 - $41,860) * 20%

= $54,418